For a managed services business, one of the most important decisions you can make is to declare the revenue growth rate you want to achieve and develop a plan to support that growth rate.
If you set the growth rate too high or unrealistic, you risk atrophying your business by making it too expensive or growing too fast.
And if you set the growth rate too low, you run the risk of becoming less competitive and not having the scale and momentum to compete effectively.
Obviously, the smaller the business, the higher the growth rate should be, and growth beyond that is a very good thing.
As for the profit of the business and what margins should be targeted, it turns out that this is less dependent on the size of the business than it is on the growth in sales.
The trend tends to depend on the maturity of the business.
There are no hard and fast rules as to what kind of margins one should expect.
In a sense, each business must make its own decisions.
However, the targeted profit will affect the price, which in turn will affect the market competitiveness.
You need to consider what expenses to include in “”cost of goods sold”” (COGS) and “”selling, general and administrative expenses”” (SG&A).
There is a subjective element involved in determining which costs are part of the direct cost of providing a service and which are expenses.
If you want to increase your gross profit margin, you can allocate costs to SG&A expenses.
However, there is no way to increase EBITDA (Earnings Before Interest and Taxes, Depreciation and Amortization). Therefore, in many ways, EBITDA is the best measure of profitability.